Monday, March 14, 2011

Greens leader Bob Brown says he will be pragmatic and do what it takes to get Labor's carbon tax bill passed, strengthening the likelihood it will become law this year.

Senator Brown said he expected the climate policy committee of Labor, Greens and independents to reach a compromise agreement on the design of a the scheme.

The bill would be hard to rescind if Greens kept the balance of power after the next election.

"We have gone into the talks with flexibility," he told Sky News. "We recognise the Australian people want us to be conversing."

Treasurer Wayne Swan yesterday held open the possibility of a government-funded advertising blitz to promote the scheme... saying John Howard had allocated $50 million in his final budget to promote his scheme.

"We haven't taken a decision. There's certainly a need," he said. "It's a big battle, it's a battle we're up for."

Climate Change Minister Greg Combet announced a series of public forums to discuss the tax starting in Geelong Friday week March 25.

Australian Workers' Union leader Paul Howes served notice that his members would not tolerate a tax that unfairly penalised Australian firms competing overseas.

"Yes, take action on carbon pricing," he told Network Ten. "But also make sure the workers are not the first victims."

Told trade minister Craig Emerson last week ruled out so-called carbon tariffs to protect Australian firms against tax-free imports Mr Howes said he would deal directly with the climate change minister.

"I would advise the trade minister to stick to his portfolio," he said. "We will deal with this in a calm manner."

"Now that the Australian Government has begun the process of putting a price on carbon, this has given rise to suggestions that tariffs be imposed on imports from countries that do not apply a similar price on carbon. The appropriate way of dealing with any disadvantage facing trade-exposed industries from the application of a carbon price is to use revenue raised from the issuing of permits to provide support for these industries to make the transition to a low-carbon future. Re-introducing tariffs to protect Australian manufacturing from import competition would increase costs for consumers and for all industries using protected manufactured products as inputs into their own production processes.

A practical problem with carbon tariffs (otherwise known as border tax adjustments) is the difficulty of correctly accounting for the various actions being taken around the world to combat climate change. Many countries are acting to reduce emissions – and in substantial ways – but not necessarily through an explicit carbon price. Ambitious mandatory renewable energy standards, enforced closures of coal-fired power assets and large scale government subsidies are just some of the policies being pursued by some of our neighbours. They all add to business costs and impose an effective price on carbon. In May 2011, the Productivity Commission will report on the effective carbon prices that operate in some of these economies. But to perform such an exercise for all our trading partners and for all traded products would be a prohibitively complex administrative task.

The huge administrative cost of assessing the carbon content of overseas production processes would likely mean any tariff would be set according to the level of carbon embedded in an equivalent Australian product, even assuming we could ignore non-price climate change policies overseas. Tariffs designed to ensure local producers are not disadvantaged by their exposure to a carbon price would actually discourage investment in cleaner technologies or production methods, which defeats the whole objective of pricing carbon.

The imposition of tariffs also fails to deal with the situation of exporters who are subject to a carbon price while their competitors overseas are not. Even if tariffs were imposed to ensure import-competing industries did not suffer unfair competition, a different mechanism would be needed for exporters.

There are better ways to ensure domestic industries do not suffer a competitive disadvantage from the imposition of a carbon price. The allocation of free permits to trade exposed industries is a clear example.

Free permits effectively insulate firms from the cost impost of a carbon price while retaining the incentive to reduce carbon emissions. Providing free permits changes the incentive to abate from a negative, cost-minimising one, to a positive profit-maximising one. A free permit is an asset on which the firm will want to maximise its return. If the cost of abatement is lower than the permit value, the firm will choose to abate and sell the permit, pocketing the difference. The allocation of free permits can be used to alleviate competitive disadvantage for exporters as well as for import-competing industries.

The use of tariffs for any purpose opens the door to their misuse. Once a reason for the imposition of tariffs has been legitimised, their abuse becomes a real and tempting possibility. This is especially true for those interests in any economy who see themselves as standing to benefit from reduced international competition. For this reason, legitimising the use of tariffs, especially to deal with a concern that can be better dealt with by other means, imposes an unnecessary and dangerous threat to the open global trading system which underpins our shared prosperity."